Climate-Friendly Companies Have More in Common Than Carbon Cuts

If your facilities need water, and projections call for drought, here’s some advice: Use less water.

If some companies are following this advice, and others aren't, the former might deserve more investor consideration.

These statements are possible takeaways from two studies released yesterday, an analysis of S&P 500 companies' climate strategies by CDP and a study of corporate climate leaders' financial performance, by CDP and Sustainable Insight Capital Management.

The CDP S&P 500 Climate Change Report 2013 [pdf] is the organization's annual analysis of results from its survey of indexed companies. This year, 334 companies, or 67 percent, of the S&P 500 participated, down from its peak of 350 in 2010. The report's conclusion: Emissions cuts and efficiency gains demonstrate that climate change management has matured at many companies.

Sixty-eight percent of respondents to CDP's survey identified drought and extreme rain as threats to infrastructure, up from 51 percent in 2012. The jump correlates with the 59 percent leap in weather-related damages — $119 billion in 2012, up from $75 billion in 2011. Companies expressed more concern over precipitation extremes than they did over tropical storms, reputational harm from climate inaction and climate-related regulation.

The joint CDP-SICM study [pdf], released simultaneously, finds a link between companies that have scored high on CDP's carbon disclosure surveys and their financial performance. CDP disclosure leaders tend to have a 5.2 percent higher return on equity, cash flow that’s more stable by 18.1 percent and 1.6 percent stronger dividend growth than other companies in their industry. The study also found that investors don’t pay a valuation premium for these companies, despite their stronger outlooks.

The results “were a surprise in that they were so stark,” said Bruce Kahn, SICM’s portfolio manager, in a phone interview. SICM, which was founded this year and is led by former Global Head of Deutsche Asset Management Kevin Parker, embeds analysis of environmental, social and governance (ESG) critera into its investment portfolio.

“The market is still slow to pick this up,” Kahn said.

Analysis and commentary on The Grid are the views of the author and don't necessarily reflect the views of Bloomberg News.